Jack in the Box Pushes Qdoba Out of the Box

In this segment of the Market Foolery podcast, host Mac Greer, Total Income ‘s Ron Gross, and Million Dollar Portfolio ‘s Jason Moser reflect on a fast-food divorce: Jack in the Box (NASDAQ: JACK) has decided to get out of fast-casual Mexican, and Apollo Global (NYSE: APO) was there to help, offering $305 million for the Qdoba chain. Is this a smart move for Jack? Did the buyer overpay for this value meal?

A full transcript follows the video.

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This video was recorded on Dec. 19, 2017.

Mac Greer: Guys, Jack in the Box selling Qdoba, the fast-casual Mexican chain. They’re selling Qdoba to the investment firm Apollo Global for $305 million. Ron, shares of Jack in the Box over the last two and five years have beaten the market and done well. The last year …

Ron Gross: Not so much.

Greer: Qdoba not doing so well. Do you like this deal?

Gross: I like the deal for Jack. I think it’s great to get rid of it. I’m surprised that Apollo — I guess they would want it, but $305 million is a good deal for Jack, I think. They bought it back in 2003 for $45 million. They’ve certainly expanded it from 85 locations up to 700. It was working for a while, right up until it kind of stopped working and the concept kind of soured. I think. Great for them to focus on their namesake brand, Jack in the Box, which, by the way, are primarily franchised, where Qdoba is much less franchised. So I think it’s a better business model to focus on the franchise Jack in the Box restaurants, get rid of Qdoba, take the cash.

Greer: Jason?

Jason Moser: Yeah, I think it just goes to speak to how difficult the restaurant business really is. It seems like a lot of Jack in the Box’s success was because of strong performance from Qdoba over the past few years. It’s competitive, obviously. There’s a little concept out there called Chipotle that seems to occupy some of the space. And that’s a much bigger concept. I think you said Qdoba has around 700 stores, Chipotle has somewhere around 2,300. And they’re looking for a new CEO that could very well light a fire under that business. So, I think it’s probably as good a time as any for them to unload it.

Jason Moser owns shares of Chipotle Mexican Grill. Mac Greer owns shares of Chipotle Mexican Grill. Ron Gross has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.